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Module 3 Readings Notes

Accounting Notes > Management Accounting, Financial Mgmt & Organisations (AC310) Notes

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AC310 Module 3

MODULE 3: ACCOUNTING IN NON-GOVERNMENTAL ORGANISATIONS Lecture 1 - Complexities of Accounting in Non-Governmental Organisations READING 1: Non-Governmental Organisations & Development (Lewis & Kanji, 2009) Introduction

* Best known for undertaking 1 of 2 main forms of activities: (1) Delivery of basic services to people in need (2) Organising policy advocacy and public campaigns for change

* Definitions of what actually constitutes an NGO tend to vary as extremely diverse group of definitions - makes meaningful generalisation difficult

* 'Identified as independent organisation neither run by government nor driven by profit motive like private sector business' - emphasises what they are not

* Rise of NGOs associated with growth of neoliberal policy agendas and emergences of alternative development ideas and practices Terms

* Huge diversity in NGO acronyms - AGNs, BINGOs, ENGOs etc.

* 'Third Sector' - Institutions divided in 3 ways: (1) Government (2) For-Profit Business (3) Group of organisations and social space between government (1) and market (2) Definitions

* Salamon & Anheier (1992) : Definitions either legal, economic or functional - only part of picture - developed structural/operational definition based on 5 key characteristics: (1) Formal - regular meetings, office bearers etc. (2) Private - institutionally separate from government but can receive funding (3) Non-Profit Distributing - if surplus accrued does not accrue to owners (4) Self-Governing - manages own affairs (5) Voluntary - some degree of voluntary participation

* Vakil (1997) : 'Self-governing, private, not-for-profit organisations geared to improve quality of life for disadvantages people' - can contrast with other 3rd sector groups (e.g. trade unions, arts/sports organisations, professional associates) What do NGOs do?

* Lewis (2007) : Summarised by 3 sets of activities: (1) Implementers - mobilisation of resources to provide goods & service to those in need (2) Catalysts - person or thing which brings about change (e.g. empowerment work) (3) Partners - shares risks/benefits from JV; growing trends of NGOs working with government, donors and private sector Evolution of NGOs

* Emerge from relatively small-scale origins, grow into large/more complex organisations

* Lewis (1990) : Conceptualise evolution in generational terms, however criticised for implying that development NGOs are locked with unidirectional processes of change - frameworks is context-specific What Do NGOs Bring to Development

* 'Embodied philosophy that recognises centrality of people in development policies'

* Seen as bringing new and progressive development agendas

* Cost-effective and efficient alternative to public sector delivery

AC310 Module 3


* NGO supporters highlight flexibility, cost effectiveness and capacity for innovation

* Critics argue that NGOs:
- Lack accountability
- Support 'private' character which lends to neoliberal paradigms
- Unproven record in overall poverty reduction

AC310 Module 3

READING 2: Management Control in Not-For-Profit Organisations (Merchant & Van der Stede, 2011) Differences Between For-Profit and Not-For-Profit Organisations

* Major defining characteristic of not-for-profit organisations is organisation's purpose

* Includes large and diverse set of organisations

* Money acts as constraint not as overriding purpose for organisation

* Do not have any outside equity interest - does not pay dividends - profit reinvested Goal Ambiguity & Conflict

* MSC should be designed to enhance probability that organisation goals will be achieved

* For private sector goal is generally to maximise shareholder wealth however less clear for not-for profit organisations - many constituents have goals but do not all agree

* Without goal clarity difficult to determine how tradeoffs should be made - difficult to judge organisations control system and management team is performing
Lack of goal clarity must be addressed to assess effectiveness of control systems Difficulty in Measuring Performance

* No single bottom line measure; without quantifiable indicators become difficult to:
- measure organisational performance in light of overall goals
- analyse benefits of alternative investments or courses of action
- decentralise organisation and hold entity managers accountable for specific areas of performance that relate exactly to organisation's overriding goals
- compare performances of entities performing dissimilar activities

* However increased focus on PM can lead to same dysfunctional side-effects e.g. behavioural displacement, gaming Accounting Differences

* Comprehensive standard for external financial statements provided by not-for-profit organisations did not exist in US until 1993

* IFRS current writing revision for not-for-profit organisations

* Different from for-profit organisations regarding depreciation

* Most exports conclude that accounting principles using in not-for-profit organisations should be identical to those used in for-profit organisation with one exception - not-forprofit organisations need separate accounts to segregate operating transactions from contributed capital transactions

* Fund Accounting - Separates resources restricted for different purposes from each other (donations can be tied to specific restrictions); general fund for operating expenses External Security

* Do not directly serve one shareholder group but have number of external constituencies

* High societal expects leads to high demands for accountability - if organisation not performing as expected donations can be withheld and managers forced out of office

* Board members selected but for reasons that do not qualify them to exercise organisational oversight; paid little/nothing - easily distracted

* In charitable sector tends to be more trust and less scrutiny Employee Characteristics

* Generally paid less (less training/qualifications) but highly committed to organisation's goals - find it easier to relate to - minimised lack of direction/motivation

AC310 Module 3

Lecture 2 - NGO Accountability READING 1: Paradox of Greater NGO Accountability: Case Study of Amnesty Ireland (Dwyer & Unerman, 2008)

* Academic research into NGO accountability lagged behind developing public, government and business interest in area

* Previous research has 2 key findings: (1) Potential for inappropriate accountability mechanisms to damage, rather than enhance the social & environment benefits NGOs seek to realise (2) Emerging dominance of upward hierarchical accountability to donors at expense of more holistic accountability to broad range of stakeholders - distorts priorities

* Current study investigates pressures managers perceive for greater accountability to certain stakeholders, the forms of accountability they use to address perceived accountability demands and possible impact these forms have had on Amnesty's human rights mission Exploring NGO Accountability - Hierarchical and Holistic Accountability

* Belief that organisations are responsible and accountable only to stakeholders who can directly influence achievement of organisation's objectives

* Hierarchical: Narrowly functional, ST orientated, favours accountability to stakeholders who control access to key resources and immediate impact ('functional accountability')
- Can instil anxiety among managers as must strive to demonstrate 'performance'
- Results in temptation to measure impacts mechanically to achieve precision -
restrains imagination, intuition, flexibility
- Prioritise accountability to powerful patrons ('upward accountability')

* Holistic: Broader forms of accountability for the impacts that an NGO's action have on a broad range of other organisational, individuals and the environment
- Quantitative and qualitative mechanisms that indicate LT achievement of mission and impact of achievement in bring structural change
- Recognises every individual has basic right to participate in decisions on matters that impact them, irrespective of power individuals holds
- Consideration of multiple stakeholders group (downward and upward accountability)

* Difficult for human rights NGOs to determine their impact - generally fail to acknowledge broader stakeholder group, focus on upward accountability

* Overcome by accountability systems prioritising downward accountability (ActionAid), social accounting (focus groups, survey to gather opinions), 'storytelling' The Case Context: Amnesty International and Amnesty Ireland

* Mission: 'undertake research and action focused on preventing and ending abuses of the rights to physical and mental integrity, freedom of conscience and expression, and freedom from discrimination, within the context of its work to promote human rights'

* Democratic, self-government movement accountable only to its worldwide membership

* Increasing collaboration between Amnesty and other organisations Research Method

* Qualitative - perceptions of managers, in conjunction with other qualitative sources
- 11 in depth interviews over 11 months with 7 key members from Amnesty Ireland's senior and middle management choses on basis of relevance to accountability and 5 highly-active local group members
- Interviews designed to discuss how accountability was experience and why it was experienced in the manner outlined
- Supplemented by press releases, public information, media reporting, media articles

AC310 Module 3

Case Findings - 4 Subsections 1) Trends in nature of Amnesty's accountability - from an internal to external focus
- Obsession about control over quality of information - importance of credibility
- Latest strategic plan reiterates need for internal accountability
- Belief that in the future external critics would hold Amnesty even more accountable
- Strained relations between Amnesty & Irish Government at time of study
- Internal focus no longer deemed sufficient - perception among managers that donordriven NGO world sought greater external accountability for impacts
- Widespread recognition of desire to be accountable to wider range of stakeholders 2) Upward accountability crowding-out downward accountability
- Managers keen to indicate need for downward accountability but downplayed as difficult to provide accountability to beneficiaries and lack of pressure to
- Prioritising easily defined and more powerful stakeholders was considered more relevant for pragmatic survival and growth reasons
- Active attention to upward accountability reflected in business-focused terminology
- Distinction between wider member base ('ordinary members') and 'high net worth donors' ('extraordinary members) - instigated plans to focus on extraordinary 3) Hierarchical accountability and the emergence of performance measurement
- Focus on high net worth led to informal, private, face-to-face accountability mechanisms evolving on ad hoc basis
- Perception that extraordinary stakeholders had preference for indicators of efficacy
- development of performance accountability indicators
- Strategy of developing performance measures internally to prevent inappropriate measures being externally imposed
- E.g. Amnesty's campaign against racism assessed by analysing media coverage over campaign period as proxy for change in public opinion 4) Performance accountability and mission achievement - problematic bed fellows
- Middle managers unsure of contribution of performance measures - measuring success impractical, could lead to focus on convenient but misleading indicators (Peru example - increase in killings but would have been more without campaign)
- Belief that Amnesty should not take direct external credit for the outcomes of successful campaigns ('culture of reticence'); government may reverse decisions if Amnesty claim to have directly influences Discussion and Conclusions 1) NGO managers must remain attentive to their core mission whatever pressure they may feel, real or imagined, to narrowly account for performance to powerful stakeholders 2) NGO managers need to develop strategies to manage the potential tensions between rigid forms of hierarchical accountability and mission achievement 3) If accountability mechanisms are merely used as control and justification instruments, rather than as tools for learning, then mission drift will become more likely as NGOs become more distant from beneficiaries

AC310 Module 3

READING 2: Accountability in Practice: Mechanisms for NGOs (Ebrahim, 2003)

* Increased concern about NGO accountability due to highly publicised scandals that have eroded public confidence and rapid growth in NGOs An Integrated Perspective of Accountability

* Edwards and Hulme (1996): 'the means by which individuals and organisations report to a recognised authority and are held responsibly for their actions'

* Fox and Brown (1998): 'the process of holding actors responsible for their actions'

* Cornwall, Lucas and Pasteur (2000): both about being 'held responsible' by others and 'taking responsibility' for oneself - both internal & external dimensions
- Multiple stakeholders - upwards, downward, self
- Functional: accounting for resources, resource use and immediate impacts
- Strategic: accounting for impacts that an NGO's activities have on the actions of other organisations and the environment

* Operates among multiple dimensions involving numerous actors, using various mechanisms and standards of performance (external/internal, explicit/implicit, legal/
voluntary), and requiring varying levels of organisational response (functional/strategic) Mechanisms of Accountability


* Policy implications: (1) While traditional approaches to improve accountability enable degree of upward accountability, limited use for downward accountability (underdeveloped) (2) Improving accountability within NGOs themselves need attention to special mechanisms (e.g. social auditing, self-regulation)

AC310 Module 3

Lecture 3 - Management accounting and control systems in NGOs READING 1: Social capital and MCS: A study of a NGO (Chenhall et al, 2010) Introduction:

* NGOs rely on developing social connections to draw together service provides and suppliers of welfare funding

* Explores how social capital may contribute to knowledge in the area of management control systems and how it may affect management of NGOs

* Social capital helps manage tension between developing an identity to deliver humanitarian services and attracting economic capital to fund operations

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